B.at first glance basketball star Shaquille O’Neal doesn’t seem to have much to do with UK Chancellor Rishi Sunak. While the American sportsman has backed Pepsi, the British minister recently admitted that he was contributing to Coca-Cola. But last week’s budget suggests they agree on at least one thing: the two have jumped on the bandwagon of special purpose construction companies (Spacs) – the hottest trend in finance.
Space enthusiasts – often celebrities such as O’Neal – raise money for a “blank check” company listing on the stock market. The company then hunts for private business to invest in. Back-up union gives the private company quick access to capital and access to the stock market that is cheaper and easier than traditional navigation. Once the process is complete, those who bought into the Spac can hold or sell the investment once the purchase is announced.
A review of London Stock Exchange rules, commissioned by Sunak and published last week, has suggested that blocking the spread of Spacs is a priority. But some are already warning that the UK could join a race to the bottom that could end in a loss for retail investors.
The idea of taking a shell of money and hunting to buy assets has been around for centuries. Advertising giant WPP, and Melrose, the controversial buyer of engineering firm GKN, both started out as silver shells.
While some investors were skeptical that Spacs offered a way to avoid scrutiny, initiatives such as Sir Richard Branson’s Virgin Galactic in 2019 and vehicles launched by hedge fund investor Bill’s visible asset helped Ackman.
Now a much clearer new generation of Spac supporters has emerged. Last month, Joanna Coles, who was an editor at Cosmopolitan magazine, led a $ 4.7bn Spac deal listing listed financial infrastructure company Apex Clearing on the New York stock exchange. It plans to use it to invest in “disruptive” technologies.
In the U.S., annual activity has turned into a flood, fueled by waves of cash incentives from central banks and newly developed retail investors. In 2020, 248 Spac vehicles were listed in the U.S., raising the equivalent of £ 63.5bn, according to data company Dealogic. Amsterdam, which travels with London for post-Brexit financial supremacy, has snatched a piece of the action, with a vehicle launched by LVMH founder Bernard Arnault, and former head of UniCredit, Jean Pierre Mustier.
The UK has so far got out of the gold race: in the same period British Spacs raised very little £ 30m.
The loss of UK-based companies such as Arrival, an electric van and Nasdaq-listed bus maker that is now merging with New York Spac, has added to the crisis.
The government review, led by Jonathan Hill, former commissioner for financial services, has proposed removing a shake-up – removing a requirement to postpone trading in Spac shares at the time of takeover so that investors have time to review the deal. Lord Hill also suggested that the regulator should look into what data Spacs needs to publish.
Speed and ease are the main attractions for companies such as Advent. The money is already there when they start negotiations with Spac, and there is no need for a time-presentation with investment banks, or for a lengthy guide explaining why they would be a good investment.
Another key benefit is that contracts are much more likely to fall through, said Adam Birnbaum of New York investment firm GP Bullhound, which works on multiple Spac contracts. Reducing the rules to match New York would see “diversification of contracts in the UK,” he said.
But London investors have already seen what can go wrong. In 2010, Nat Rothschild, a scion of the famous banking family, raised more than £ 700m in a silver shell that became Bumi, and took over the Indonesian mining company. But things went well and the agreement resulted in years of regulatory problems and fines.
Roger Barker, director of policy and governance at the Institute of Directors, backed most of Hill’s review decisions, including allowing the founders of tech companies such as Deliveroo to have more control. The removal of restrictions on Spacs was an exception, he said.
“[The rules] are they there for a reason, ”said Barker. “One can say they are heavy, but they are there to ensure good governance and investor protection.”
The first major explosion of the latest Spac wave in the U.S. has yet to happen – but investors are already deceived. David Schwimmer, head of the London Stock Exchange, warned on Friday of a “froth” in the US Spac market, amid concerns that it could contribute to a growing equity bubble.
Nikola, a U.S. company hoping to make hydrogen fuel cell trucks, went up in value after Spac’s merger in June 2020, but fell back quickly after a mis-selling scandal. Last month, retail investors poured money into Spac joining Lucid Motors, a promising competitor to Tesla in electric cars. Shares fell when it was reported that the terms of the contract were less favorable than samplers had hoped.
But the UK government seems to reinforce the idea that opening the door open to US-style Spacs will allow it to attract tech companies, with much of the city on board. The final rules will be set at the end of 2021 after consultation with the Financial Conduct Authority, the governor of the City.
“The reality is that these Spacs are going somewhere, so subject to appropriate protection, it’s better to attract them to London than to allow this business to go elsewhere,” said Paul. Lynam, a former banker who plans to manage Equiniti a company that handles payments to shareholders.
Alexander Haynes, chief executive of Aquis, a smaller competitor to the London Stock Exchange on which Spacs can be listed, said it was “absolutely right” for the UK to look at what was needed to boost their markets. built.
He said transparency was crucial, and Spacs could be useful as long as investors knew exactly what they were getting into: “Some of these will succeed and some will fail. . ”
Capture of celebrities
Spacs have attracted the attention of high-flying people, celebrities and entrepreneurs. Here are some of the most famous:
Joanna Coles, who was an editor at Cosmopolitan The British-born journalist has recorded a remarkable journey from editing the glossy magazines Marie Claire and Cosmopolitan to take away billion-dollar corporate finance contracts. Her $ 400m vehicle, Northern Star Investment Corp II, was paired with Apex Clearing, a company she said provided the “invisible architecture” behind the fintech retail store.
Shaquille O’Neal, a retired U.S. basketball player O’Neal is widely regarded as a full-time basketball player, but his career has also made a remarkable turn to high finances. He will serve as strategic advisor to the $ 250m Forest Road Construction Corps, which last month announced a three-way merger with fitness companies Beachbody Company and MYX Fitness. The sons of Martin Luther King Jr. and three former Disney officers are also involved, and the same team has already filed to look for Forest Road Acquisition II, Spac to buy a media company.
Serena Williams, tennis player In December, Williams, the most successful player in women’s tennis history, joined the board of Jaws Spitfire Acquisition, a Spac that raised $ 300m to target consumer technology companies. This was the second Spac Jaws started by Barry Sternlicht, an investor with his company, Starwood Capital, interested in hotels and real estate.
Retired baseball player Alex Rodriguez Not to be outdone, baseball star Rodriguez is the chief executive of Slam, Spac which has filed to raise $ 500m. It looks at investments from media and entertainment to consumer technology – but does not buy sports licenses. American football quarterback and striker Colin Kaepernick – who was famous on his knee at the time of the U.S. anthem to protest against police brutality – has also signed Spac.
Bill Ackman, hedge fund manager Ackman made huge trading profits at the start of the coronavirus pandemic by promising that markets would collapse. He has been at the center of Spac’s rise, building a huge $ 4bn pot for Pershing Square Tontine Holdings. Ackman will invest another $ 1bn to $ 3bn in the vehicle to boost its firepower. The company turned off short-term Airbnb approach from Spac last summer, according to the Financial Times.
Lucid Motors, electric car manufacturer Lucid Motors chief Peter Rawlinson was chief engineer for Tesla before striking out on his own, backed by Saudi Arabia. Lucid’s reunification with Churchill Capital IV was a $ 1.8bn pledge from wholesale retail investors amid a mania for companies hoping to be part of the electric car conversion. By the time the Lucid merger came ashore it had been the largest Spac deal to date, giving it a $ 24bn valuation. However, some investors are already fostering a steep loss after claiming a six-fold share price before the terms of union were published.
Sir Richard Branson, entrepreneur Virgin Galactic, a British entrepreneur hopes to start a new chapter in the age of space; the company also played an important role in the age of Spacs with the backward union in October 2019. Branson had looked to get investment from the Saudi Arabian government, but withdrew after the revolution (short term ) after the assassination of Saudi-agreed journalist Jamal Khashoggi. Instead he turned to New York-registered Hedosophia Social Capital, an investment vehicle run by former Facebook official Chamath Palihapitiya. Palihapitiya’s second Spac was a $ 4.8bn merger with SoftBank-backed start-up owned Opendoor.